ASSISTANT COMMISSIONER OF INCOME TAX 14(2)(2), MUMBAI V. MIRAE ASSET GLOBAL INVESTMENT (INDIA) PRIVATE LIMITED, MUMBAI

ITA 230/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6500 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 09-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D G PANSARI
• Keywords: Set aside
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.230/M/2018 ASSESSMENT YEAR: 2012-13 ACIT 14(2)(2), 461, AAYAKAR BHAVAN, 4 TH FLOOR, M.K. MARG, MUMBAI - 400020 VS. M/S. MIRAE ASSET GLOBAL INVESTMENT (INDIA) PVT. LTD., UNIT NO.606, 6 TH FLOOR, WINDSOR, OFF CST ROAD, KALINA, SANTACRUZ (EAST), MUMBAI 400 098 PAN: AAECM 8387K (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI D.G. PANSARI, A.R. REVENUE BY : SHRI AJAY SINGH, D.R. DATE OF HEARING : 11.02.2019 DATE OF PRONOUNCEMENT : 19.02.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 19.10.2017 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE ONLY ISSUE RAISED BY THE REVENUE IS AGAINST THE ORDER OF LD. CIT(A) DELETING/ALLOWING THE EXPENSES EXCEEDING LIMIT SPECIFIED IN SEBI REGULATION BY IGNORING THE FACT T HAT THE EXPENSES WERE NOT THE LIABILITY OF THE ASSESSEE AND WERE RIGHTLY DISALLOWED BY THE AO. 3. THE FACTS IN BRIEF ARE THAT THE AO DURING THE CO URSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE H AS CHARGED ITA NO.230/M/2018 M/S. MIRAE ASSET GLOBAL INVESTMENT (INDIA) PVT. LTD . 2 TO THE PROFIT & LOSS ACCOUNT, THE EXPENSES INCURRED IN RELATION TO LAUNCHING OF TWO NEW NFOS DURING THE YEAR AND ACCOR DINGLY THE AO ISSUED SHOW CAUSE NOTICE DATED 10.03.2015 TO PRO VIDE DETAILS OF EQUITY NFOS LAUNCHED DURING THE YEAR AND EXPENSES INCURRED IN CONNECTION THEREWITH ALONG WITH DOCUMEN TARY EVIDENCES WHICH WERE REPLIED BY THE ASSESSEE BY SUB MITTING THAT ASSESSEE HAS INCURRED RS.11,22,950/- AS EXPENSES IN EXCESS OF THE LIMIT PRESCRIBED BY THE SEBI. THE ASSESSEE ALS O FILED THE DETAILS OF VARIOUS NFOS ON WHOSE BEHALF THE ASSESSE E HAS INCURRED EXPENSES AS REPRODUCED BY THE AO AT PAGE N O.3. THE AO CONSIDERED SAID REPLY OF THE ASSESSEE AND CAME T O THE CONCLUSION THAT THE EXPENSES INCURRED IN RELATION T O LAUNCHING OF EQUITIES AND NFOS ON BEHALF OF THE ABOVE COMPANIES AS STATED IN PARA 7.2 CAN NOT BE TREATED AS EXPENSES OF THE ASSE SSEE AS THE SAID EXPENSES WERE LIABILITY OF THE MUTUAL FUNDS EN TITIES ON WHOSE BEHALF THE ASSESSEE LAUNCHED THE NFOS. ACCOR DING TO THE AO, THE INCOME TAX ACT AND SEBI ACT THERE ARE TWO D IFFERENT LAWS GOVERNING DIFFERENT MATTERS AND THEREFORE THE PROVISIONS OF SEBI ACT ARE NOT APPLICABLE TO THE FACT. THE AO OB SERVED THAT INCOME OF THE ASSESSEE HAS TO BE COMPUTED AS PER TH E PROVISIONS OF INCOME TAX ACT. ACCORDINGLY, THE AO DISALLOWED THE EXCESS OF EXPENDITURE AS INCURRED BY THE ASSESSEE OVER AND AB OVE THE SEBI LIMIT TO THE TUNE OF RS.85,43,750/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE THE DETAILS WHEREOF ARE GIVEN IN PARA 7.2 OF THE ASSESSMENT ORDER. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALL OWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 6.4 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E APPELLANT'S SUBMISSIONS. THE APPELLANT IS AN AMC ( ASSET MANAGEMENT COMPANY) AND HAD ENTERED INTO AN INVESTMENT MANAGEMENT AGREEMENT WITH THE TRUSTEE CO MPANY OF MIRAE ASSET ITA NO.230/M/2018 M/S. MIRAE ASSET GLOBAL INVESTMENT (INDIA) PVT. LTD . 3 MUTUAL FUND, NAMELY, MIRAE ASSET TRUSTEE COMPANY PV T. LTD. AS PER THE AGREEMENT, THE FEES AND EXPENSES OF THE AMC ARE TO BE SUBJECT TO THE LIMITS PRESCRIBED FROM TIME TO TIME UNDER THE SEBI REGULAT IONS AND IN ACCORDANCE WITH THE PROVISIONS THEREOF. AS PER REGULATION 52(2) AND 52(4) OF THE SEBI (MUTUAL FUND) REGULATIONS 1996, AMCS ARE ALLOWED TO CHARGE FEES & EXPENSES TO MUTUAL FUND SCHEME WITHIN LIMITATION. THE TOTAL EXPENSES THAT C AN BE CHARGED TO MUTUAL FUND SCHEME ARE SPECIFIED IN REGULATION 52(6). REGULATI ON 52(7) PROVIDES THAT ANY EXPENDITURE IN EXCESS OF THE LIMITS SPECIFIED IN RE GULATION 52 (6) AND (6A)] SHALL BE BORNE BY THE ASSET MANAGEMENT COMPANY OR BY THE TRU STEE OR SPONSORS. PERUSAL OF THE INVESTMENT MANAGEMENT AGREEMENT SHOWS THAT PARA GRAPH 41 UNDER ARTICLE IX CLEARLY MENTIONS THAT EXPENSES INCURRED EXCEEDING T HE LIMIT SPECIFIED BY THE SEBI REGULATIONS SHALL BE BORNE BY THE AMC. THE APPELLAN T COMPANY HAD ACCORDINGLY DEBITED SUCH EXPENSES TO ITS P & L ACCOUNT AND CLAI MED IT AS ALLOWABLE EXPENSES U/S 37(1) OF THE ACT. THE ASSESSING OFFICER WAS OF THE VIEW THAT SUCH EXPENSES PERTAINED TO THE RESPECTIVE COMPANIES BUT COULD NOT BE CHARGED TO THEM BECAUSE OF THE CEILING OF EXPENSES PRESCRIBED BY SEBI. THAT THIS LIABILITY OF OTHERS COULD NOT BE TRANSFERRED TO THE APPELLANT COMPANY AND ALLOWED AS DEDUCTION UNDER THE PROVISIONS OF THE ACT. THE AO ALSO OBSERVED THAT TH E APPELLANT HAD FAILED TO PRODUCE ANYTHING COGENT ON RECORD TO SHOW THAT THER E WAS ANY CORRESPONDING REVENUE INCREASE DUE TO THE LAUNCHING OF TWO NEW EQ UITY NFOS AND HENCE DISALLOWED THE EXPENSE OF RS.85,43,750/- INCURRED I N EXCESS OF SEBI CEILING. 6.5 THE APPELLANT COMPANY HAD INCURRED EXPENSES IN PURSUANCE OF THE INVESTMENT MANAGEMENT AGREEMENT AND THE EXPENSES WERE THUS INC URRED FOR ITS BUSINESS ACTIVITY. THE EXPENDITURE HAD A DIRECT NEXUS WITH T HE APPELLANT'S OWN BUSINESS OF ASSET MANAGEMENT. THE SEBI REGULATIONS MERELY PRESC RIBES THE CEILING OF EXPENSES THAT CAN BE CHARGED TO MUTUAL FUND SCHEMES. THERE I S NO SUCH RESTRICTION ON THE EXPENSES TO BE INCURRED BY THE AMC. THE EXPENSES IN CURRED WERE THE APPELLANT'S OWN EXPENDITURE AND IT WAS A PART AND PARCEL OF THE PROFIT-MAKING ACTIVITY OF THE APPELLANT. THE EXPENSES THAT COULD NOT BE CHARGED T O THE MUTUAL FUNDS/COMPANIES BECAUSE OF THE SEBI CEILING CANNOT, THEREFORE, BE C ONSIDERED AS PERTAINING TO THESE MUTUAL FUNDS/COMPANIES AND NOT TO THE APPELLANT. TH E NON INCREASE IN REVENUE ON ACCOUNT OF LAUNCH OF NFOS WILL ALSO NOT AFFECT THE ALLOWABILITY OF THE EXPENSES INCURRED FOR ITS BUSINESS OF ASSET MANAGEMENT. REGU LATION 52(7) OF SEBI REGULATIONS PROVIDES THAT ANY EXPENDITURE IN EXCESS OF THE LIMI TS SPECIFIED IN REGULATION 52 (6) AND (6A)] SHALL BE BORNE BY THE ASSET MANAGEMENT CO MPANY OR BY THE TRUSTEE OR SPONSORS. THE INVESTMENT MANAGEMENT AGREEMENT AT PA RAGRAPH 41 UNDER ARTICLE IX ALSO CLEARLY MENTIONS THAT EXPENSES INCURRED EXCEED ING THE LIMIT SPECIFIED BY THE SEBI REGULATIONS SHALL BE BORNE BY THE AMC, IN VIEW OF ALL THESE FACTS, THE DISALLOWANCE OF EXPENSES OF RS.85,43,750/- MADE BY THE AO IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 5. THE LD. D.R. REITERATED HIS ARGUMENTS AS MADE BE FORE THE LD. CIT(A) BY SUBMITTING THAT SEBI AND IT ACT ARE T WO DIFFERENT ACTS GOVERNING THE MATTERS IN THEIR RESPECTIVE AREN A. THE LD. D.R. SUBMITTED THAT THE SEBI ACT GOVERNS THE MATTER FALLING UNDER THE ARENA OF SEBI ACT WHEREAS THE PROVISIONS OF INCOME ITA NO.230/M/2018 M/S. MIRAE ASSET GLOBAL INVESTMENT (INDIA) PVT. LTD . 4 TAX ACT GOVERN THE ASSESSMENT OF INCOME AS PER INCO ME TAX ACT. THE LD. D.R. SUBMITTED THAT THE EXPENSES WHICH ARE LIABILITY OF 10 MUTUAL FUND COMPANIES AS HAS BEEN STATED BY THE AO IN PARA 7.2 OF THE ASSESSMENT ORDER CAN NOT BE TREATED AS E XPENSES INCURRED BY THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS AND CAN NOT BE ALLOWED UNDER THE PROVISIONS OF SECTION 37 AS THE ASSESSEE HAS APPARENTLY INCURRED THE EXPENSES ON BE HALF OF THE SAID COMPANIES. THE LD. D.R. ALSO MADE WITHOUT PRE JUDICE SUBMISSION THAT IN CASE OF THE SAID EXPENSES ARE TR EATED AS EXPENSES BELONGING TO THE ASSESSEE EVEN THEN THE SA ME ARE NOT ALLOWABLE AS THESE ARE OF CAPITAL NATURE AND NOT REVENUE IN NATURE AS THESE WERE INCURRED IN CONNECTION WITH NE W NFOS. THE LD. D.R. FINALLY PRAYED THAT THE ORDER OF LD. C IT(A) BE SET ASIDE AND AO BE RESTORED. 6. THE LD. A.R., ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF LD. CIT(A) AND SUBMITTED THAT THE EXPENSES INCUR RED BY THE ASSESSEE TO THE TUNE OF RS.85,43,750/- ARE INCURRED IN THE ORDINARY COURSE OF BUSINESS BY THE ASSESSEE AS IT I S SPECIFICALLY MENTIONED IN THE INVESTMENT MANAGEMENT AGREEMENT IN PARA 41 UNDER ARTICLE 9 THAT EXPENSES INCURRED EXCEEDING TH E LIMIT SPECIFIED BY SEBI REGULATION SHALL BE BORNE BY AMC AND THEREFORE WERE ACCORDINGLY DEBITED TO THE P&L ACCOU NT AND IS ALLOWABLE EXPENSES UNDER SECTION 37(1) OF THE ACT. THE LD. A.R. ALSO SUBMITTED THAT THE CASE OF THE ASSESSEE IS SQU ARELY COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TEMPLETON ASSET MANAGEMENT (INDIA) P. LTD. (201 2) 340 ITR 279 (BOM.) WHEREIN THE SIMILAR ISSUE HAS BEEN DECID ED IN FAVOUR OF THE ASSESSEE THAT EXPENSES INCURRED OVER AND ABO VE THE LIMIT SPECIFIED AS PUT BY THE SEBI SHALL BE BORNE BY AMC AND ARE ITA NO.230/M/2018 M/S. MIRAE ASSET GLOBAL INVESTMENT (INDIA) PVT. LTD . 5 COVERED BY PROVISION OF SECTION 37(1) OF THE ACT. THE LD. A.R. SUBMITTED THAT IN VIEW OF THE SAID DECISION AND THE FACTS ON RECORD, THE ORDER OF LD. CIT(A) SHOULD BE AFFIRMED. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT IN THIS CASE THE ASSESSEE IS E NGAGED IN THE BUSINESS OF ASSET MANAGEMENT AND INVESTMENT ADVISOR Y SERVICES. DURING THE YEAR THE ASSESSEE HAS LAUNCHE D NFOS ON BEHALF OF VARIOUS CLIENTS AS MENTIONED IN PARA 7.2 OF THE ASSESSMENT ORDER. THE SEBI REGULATIONS SPECIFY THE LIMIT BEYOND WHICH THE COMPANIES ON WHOSE BEHALF THE NFOS ARE LAUNCHED CAN NOT BE EXCEEDED AND THEREFORE THE EXPE NSES IN EXCESS OF THE SAID SEBI LIMIT OF RS.85,43,750/- WAS CLAIMED BY THE ASSESSEE AS EXPENSES INCURRED IN THE ORDINARY C OURSE OF BUSINESS UNDER SECTION 37(1) OF THE ACT. WE FURTHE R FIND THAT THE LD. CIT(A) RECORDED A FINDING OF FACTS THAT SAID EX PENSES WERE INCURRED BY THE ASSESSEE UNDER INVESTMENT MANAGEMEN T AGREEMENT WHICH PROVIDED THAT THE EXCESS EXPENSES I NCURRED OVER AND ABOVE THE LIMIT SPECIFIED BY THE SEBI REGU LATION SHALL BE BORNE BY THE AMC I.E. ASSESSEE. IN OUR VIEW, TH ESE EXPENSES ARE INCURRED BY THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS AS THE ASSESSEE IS IN THE BUSINESS OF PROVIDING ASS ET MANAGEMENT AND INVESTMENT REVISIONARY SERVICES FOR LAUNCHING THE EQUITY AND NFOS ON BEHALF OF VARIOUS CLIENTS TH E ASSESSEE . MOREOVER, IT HAS BEEN SPECIFICALLY AGREED BETWEEN T HE PARTIES THAT ANY EXPENSES INCURRED IN EXCESS OF LIMIT SPECI FIED BY THE SEBI REGULATION SHALL BE BORNE BY THE AMC. THE CAS E OF THE ASSESSEE IS ALSO SUPPORTED BY THE HONBLE BOMBAY HI GH COURT IN THE CASE OF CIT VS. TEMPLETON ASSET MANAGEMENT (IND IA) P. LTD. (SUPRA) WHEREIN THE HONBLE BOMBAY HIGH COURT HAS H ELD THAT IF ITA NO.230/M/2018 M/S. MIRAE ASSET GLOBAL INVESTMENT (INDIA) PVT. LTD . 6 THE ASSESSEE IS AN ASSET MANAGEMENT COMPANY (AMC), DUE TO BUSINESS EXIGENCY, CLAIMS AND RECOVERS FROM MUTUAL FUNDS LESSER AMOUNT THAN AMOUNT OF EXPENDITURE ACTUALLY I NCURRED DURING THE COURSE OF BUSINESS, THEN UNLESS IT IS ES TABLISHED THAT THERE WERE NO BUSINESS EXIGENCIES OR CLAIM WAS NOT GENUINE EXPENDITURE INCURRED CAN NOT BE DISALLOWED. IN THE CASE OF THE ASSESSEE ALSO THE ASSESSEE HAS NOT DOUBTED THE GENU INENESS OF THE EXPENDITURE OR BUSINESS EXIGENCIES AND CAME TO THE CONCLUSION THAT SAID EXPENSES ARE IN EXCESS OF LIMI T SPECIFIED BY THE SEBI REGULATION AND BELONG TO THE MUTUAL FUNDS AND NOT TO THE ASSESSEE. WE, THEREFORE, RESPECTFULLY FOLLOWIN G THE DECISION OF THE HONBLE BOMBAY HIGH COURT (SUPRA), ARE INCLI NED TO UPHOLD THE ORDER OF LD. CIT(A) BY DISMISSING THE AP PEAL OF THE REVENUE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.02.2019. SD/- SD/- ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 19.02.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.